Dragged down by the brake system recall incident, BMW lowers full-year performance expectations, European stocks plummet over 8%

BMW significantly lowers profit expectations for the year due to the brake system recall incident. Previously, due to faults in the brake systems produced by Continental Group, 1.5 million vehicles were recalled on a large scale. BMW stated on Tuesday that the company now expects the operating profit margin for the year to decrease to 6%. This is down from the previous expectation of 8%-10%. After the announcement, BMW's stock price fell by 7.1% at one point, marking the largest intraday decline since March 2022. Continental Group's stock price also fell by approximately 7.5% intraday. So far, BMW is the only manufacturer using Continental's braking system, with all its models, including Rolls-Royce and the popular SUV series, equipped with the system. The recall incident has undoubtedly poured cold water on BMW. Last year, BMW's brands and Mini brand collectively sold 2.25 million vehicles. With declining demand, intensifying competition, and a significant downward revision of performance expectations this year, BMW is facing a serious challenge. BMW is evaluating whether the faulty products can be repaired through software updates or if physical hardware repairs are necessary. In addition, the company plans to complete the recall work this year but anticipates that it may exceed the budget before 2025. BMW previously expected a decline in pre-tax profit this year, and the large-scale recall further exacerbates this trend. The company anticipates generating tens of millions in additional warranty costs in the third quarter due to the recall. Currently, BMW is considering seeking compensation from Continental Group to offset some of the losses. For Continental Group, this recall incident is undoubtedly a further blow to the company, which was already facing many issues. Due to poor management, Continental Group is considering separating its automotive components business and tire business to improve the overall condition of the company. The company has previously attempted measures to improve the profitability of the automotive components business, but without success. Furthermore, Continental Group also faces recent profit declines and a diesel emission scandal. This has not only resulted in a hefty $110 million fine for the company but also severely impacted its reputation and financial situation